Three indicted in fake virtual art gallery scheme

NEW YORK (Reuters) -- Three men were indicted Wednesday for their role in a scheme to fraudulently sell $5.5 million worth of securities in an allegedly bogus "online virtual art gallery and jewelry mall Website" called Precious Stones Trading Worldwide.

"Precious Stones was not engaged in any business except defrauding investors," the SEC alleged in the indictment.

Russell Rapoport, 26 of Manhattan and brothers Edward Landenbaum, 28, and Igor Landenbaum, 38, both of Brooklyn, were charged in Manhattan federal court with conspiring to commit securities fraud, mail and wire fraud.

If convicted, the defendants face a possible maximum sentence of 15 years in prison and fines of $1.25 million.

The men and Precious Stones Trading Worldwide were also named in a related civil suit filed by the Securities and Exchange Commission. The SEC suit said at least 208 investors were cheated in the scheme.

The indictment alleged that between October 1997 and April 2000, the men sold about $5.5 million in Precious Stones common stock and warrants under a private placement offering memorandum. The memo described the company as a wholesaler that sold precious gems to retailers. It also said Precious Stones created jewelry designs and developed talent for jewelry and art design in Eastern Europe and Russia.

It further said that the company generated Internet exposure for this talent by creating a "virtual museum and exhibiting these jewelry and/or artistic designs in a virtual art gallery," the indictment charged.

According to the indictment, the defendants made false representations to investors to get them to buy Precious Stones' securities. Since October 1997, they allegedly falsely told customers the initial public offering (IPO) of Precious Stones was imminent and that the company had filed forms required by the SEC to become a publicly traded company.

The defendants also allegedly predicted that the price of the IPO common stock would be three to four times higher than the price the customer was getting through the private placement.

However, Precious Stones never had an IPO nor did it file any forms required by the SEC.

Federal authorities alleged that the defendants diverted the bulk of investors' funds to themselves and to pay personal expenses.

Copyright 2000 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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